Taxable for the LLC owner

[ChristUp]

If single member disregarded entity LLC receives income from Community Care Licensing Division, California department of social services, for the placement of children with developmental disabilities in a long-term residential care facility; Is the income taxable for the LLC? If it is not taxable, does the owner have to pay self-employment tax when the income passes through? Is this considered a difficulty of care payments paid through a Medicaid waiver program? 

More information: the owner lives with the children full-time in the home. The owner is paid an administrative fee for managing the home and is also paid as caregiver. The LLC does have employees that also rotate in and out to help care for the children.

[jeffmcpa2010]

Disregarded means Disregarded.

The return is prepared as if there were no LLC.

Just prepare the return as if it were a normal Sole Proprietorship.

[ChristUp]

Thank you for responding. Am I to report the money on my return as taxable or nontaxable income? Would I need to pay self-employment tax on it or not?

[jeffmcpa2010]

I am not well versed in you taxable/non-taxable question, but if it is taxable it will also be taxable for SE tax.

[Just-Lisa-Now-]

"Is this considered a difficulty of care payments paid through a Medicaid waiver program? "

Nobody here can answer that for you.   The social worker that placed the children should be able to clear that fact up.

[ChristUp]

Thank you responding. I really appreciate any guidance.

If it is not taxable, does the owner have to pay self-employment tax when the income passes through?

If when a single member LLC receives payment, is it equivalent (for tax purposes) as the owner themselves receiving a direct payment.

Would the nontaxable income received by a single member LLC still be considered nontaxable when the owner draws the money out for personal use?

[Terry53029]

See Notice 2014-7  https://www.irs.gov/pub/irs-drop/n-14-07.pdf

see @Just-Lisa-Now-  response. You have to check, and not rely on opinions from the internet

[TaxGuyBill · Accepted solution]

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@ChristUp wrote:

If it is not taxable, does the owner have to pay self-employment tax when the income passes through?

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The link below will be helpful, particularly #14.

https://www.irs.gov/individuals/certain-medicaid-waiver-payments-may-be-excludable-from-income

But as was mentioned above, you FIRST need to find out if it qualifies or not.  The Social Workers should know if it is from a "Medicaid Waiver" program that qualifies for "IRS Notice 2014-7".

[qbteachmt]

Are you working on your Client's return, or your own?

Are you reading the links?

This: "in a long-term residential care facility"

is either private home or group home or Facility. Some of the resources given include limitations by number of children or adults in that home. A Facility doesn't count.

This: "Would the nontaxable income received by a single member LLC still be considered nontaxable when the owner draws the money out for personal use?"

Means you don't really know how this works, and you need some mentoring. Or, for this client, you should send this return elsewhere. The taking of funds is not the taxable event, no matter how the funds got to the bank in the first place, unless this was supposed to be payroll. Draws, from a Sole Proprietorship, are never the taxable event, and this is a basic thing to know.

[ChristUp]

Thank you, that was very helpful.

[ChristUp]

Thank you for taking the time to reply. I could have been more clear. I didn't mean that tax would be taken at the time of draw, but wanted to know if tax would be owed on the money drawn come tax season.  

The care takes place in a private residence.

I definitely need mentoring. I appreciate you and everyone else for trying to point me in the right direction.

[qbteachmt]

"but wanted to know if tax would be owed on the money drawn come tax season."

No. Again, that's a basic issue about managing a Sole Proprietorship. All the money is theirs, already, whether they "take" it or not. It's all been taxed, already, because the operation is reported for tax purposes. Even if they "take" it as it comes in, they will be reporting the entire year's operations for tax purposes. Having money in the business or taking it all won't change the tax picture. Even if you never take any money out of the business, all of that money was supposed to have been reported and taxed. Even if all the money is put into assets, inventory, real estate, etc, it got taxed first.

[George4Tacks]

https://www.publicpartnerships.com/media/zycpuhye/difficulty-of-care-training.pdf should be helpful. Note the limits of number of "clients"

I notice this is your first post. Normally this is for tax professionals. If you are using TurboTax, you should be using their resources. 

Please visit the TurboTax Help site for support of the not so professional .

Have a wonderful day!

[ChristUp]

That makes sense. Thanks again for the clarification.

[ChristUp]

I didn't realize that. Thank you for letting me know.